James T. Hippel - Bio-Techne Corp. Charles R. Kummeth - Bio-Techne Corp..

Puneet Souda - Leerink Partners LLC Daniel Arias - Citigroup Global Markets, Inc. Dan Leonard - Deutsche Bank Securities, Inc. Amanda L. Murphy - William Blair & Co. LLC Emily G. Stent - Robert W. Baird & Co., Inc. Matthew G. Hewitt - Craig-Hallum Capital Group LLC Tim C. Evans - Wells Fargo Securities LLC Paul Richard Knight - Janney Montgomery Scott LLC.

Good morning and welcome to the Bio-Techne Earnings Conference Call for the First Quarter of Fiscal Year 2018. At this time, all participants have been placed in a listen-only mode, and the call will be opened for questions following management's prepared remarks. I would now like to turn the call over to Mr.

Jim Hippel, Bio-Techne's Chief Financial Officer. Please go ahead, sir..

Yeah. Good morning and thank you for joining us. On the call with me this morning is Chuck Kummeth, Chief Executive Officer of Bio-Techne. Before we begin, let me briefly cover our Safe Harbor statement.

Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations of the company's future results.

The company's 10-K for fiscal year 2017 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements as a result of any new information or future events or developments.

The 10-K as well as the company's other SEC filings are available on the company's website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance.

Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning under the Bio-Techne Corporation website, at www.bio-techne.com. I'll now turn the call over to Chuck..

Thanks, Jim, and good morning, everyone. Thank you for joining us for our first quarter conference call. As you saw in our press release, we started fiscal year 2018, just as we finished last year, on a strong note and well on our way to executing on our strategic plan.

The company delivered 8% organic growth in the quarter and our two divisions that primarily serve the life science research market, Biotechnology and Protein Platforms, collectively grew organically by over 9%. Especially encouraging, the growth we saw in Q1 was broad-based in both geography and product category.

Europe continued to deliver outstanding results with Q1 organic growth in the low-teens. Within Europe, growth was also broad-based with solid contribution from both our reagent and instrument product categories. All major countries in Europe experienced growth in both the academic and BioPharma end markets growing double-digit in the region.

With new leadership established last year, along with an acquisition of our most loyal distributor in Southern Europe, we embarked on creating a more unified European subsidiary, with attention to cross-selling and regional collaboration. We believe this model's working. As in Europe, our Asia region also broadly delivered outstanding results.

In China, growth of our Western brands again grew over 30% in Q1, just as they had in Q4. Japan is experiencing growth in a big way, growing over 20% in Q1, while the rest of APAC reported growth of nearly 30%. It's gratifying to see the regional subsidiaries trying to one-up each other every quarter.

I am very proud of the leadership and commercial teams we have in our region. They are executing at an exceptional level. Here in the U.S., we started the year with mid-single-digit growth in both our academic and BioPharma end markets.

We saw an uptick in the academic projects that coincided with the release of NIH funding that has been widely reported on, which gave us a modest acceleration from the low-single-digit growth rates we've seen in the U.S. academic market for a long time now. The BioPharma market in the U.S.

was stable in Q1, though not as strong as we are seeing in Europe and elsewhere. We believe project timing is still impacting some of the larger U.S. pharma companies, but long-term the trend is still upward. Now, for some color on our Q1 performance by division.

Our Biotech division grew 6% organically in Q1, with the core reagent product categories collectively growing around 3% and ACD growing north of 40%. Within Biotech's core products, antibodies continued to excel as a category with our R&D Systems brand growing in the high-single digits and our Novus branded antibodies growing a remarkable 30%.

One of our key growth strategies has been expanding our antibody portfolio and investing in our web capabilities in order to provide the vast amount of data on the performance of antibodies that researchers demand before making their purchase. As Q1 and most of last year has shown, that strategy is bearing fruit.

And finally, this past August, we celebrated the one-year anniversary of Advanced Cell Diagnostics being part of the Bio-Techne family. This means that two months worth of ACD sales were included in the Biotech's division's organic growth rate.

Although still a relatively small part of the Biotech division, at a 40% growth rate it won't be small for long. We see a long runway of revenue growth ahead for ACD as the pathologists continue to appreciate and continue its RNA in situ hybridization transformative technology.

The clinical diagnostic markets for ACD's products are just beginning to be tapped and we've barely started in China yet. We believe the best is still yet ahead for ACD, especially once full integration with the rest of the company is complete by end of the fiscal year.

We continued to bolster our Biotech reagent portfolio with the acquisition of Trevigen in early September. We are very familiar with the Trevigen product line, having sold it for many years through our own sales channels.

Trevigen products enable researchers to better understand cell behavior and genotoxic events on cells, and complement our current product portfolio. Having tools to study DNA damage and the apoptotic cell process is an important aspect of understanding drug action.

Drug testing is increasingly becoming conducted on physiological cell models, including 3D cell cultures, and Trevigen's Cultrex product line supports the robust growth of such cells, making these products an important addition to the Bio-Techne portfolio. Trevigen will be a nice tuck-in acquisition for us.

Organically, we continue to focus on product innovation vitality with hundreds of new proteins and antibodies developed and released for sale every quarter. This quarter, I would like to highlight a few new product releases that highlight our leadership and assays.

In Q1, we launched a new XL Cytokine Discovery Luminex Performance Panel, which has the capability to simultaneously measure 45 different analytes in a variety of sample types. Our product category of multiplex assay grew 25% in Q1.

And with new product launches like XL Cytokine Discovery, we see runway for future double-digit growth as we capture market share. In September, we also released a new rapid ELISA design to measure anti-Zika virus, immunoglobulin G antibodies in human serum.

A unique feature of this assay is that, prior to performing the test, samples are pre-treated with a proprietary reagent designed to minimize any interfering proteins present in the serum which could produce a false positive result.

It will be particularly useful for researchers that are testing samples collected from areas where Zika virus and dengue virus co-circulate, since the assay will clearly distinguish between the two viruses and will eliminate the likelihood of a false positive.

Furthermore, since approximately 80% of the individuals infected with the Zika virus don't realize that they are infected and IgG antibodies persist for such a long time following infection, this kit can be used to detect prior infections and determine whether the Zika virus may be linked to subsequent neurological disorders or fetal abnormalities.

We recognize the need for more research to understand the biology of emerging viruses like Zika and are proud to contribute to this field. Also in September, we launched an expansion of the Ella immunoassay platform with a 32x4 Simple Plex cartridge.

This new cartridge simultaneously measures up to 32 different samples against four different analytes of interest, doubling the current sample throughput while maintaining a total immunoassay time of 85 minutes.

The Ella platform, coupled with our new 32x4 Simple Plex cartridge, meets the continued request of our global immunoassay customer base to deliver solutions that enable higher throughput immunoassays while maintaining high sensitivity and ease-of-use not offered by other products in the market. Speaking of Ella, I'll now move on to Protein Platforms.

This division with 25% organic growth in Q1 is executing really well, now marking the seventh quarter in a row with double-digit organic growth, six out of seven of those with growth over 20% or better.

All four of the division's major product categories, Biologics, Simple Western, Simple Plex and Single-Cell Western, grew more than 20% in the quarter, with both Simple Plex and Single-Cell Western growing over 100%.

A dedicated sales effort focused on multiplex type assays is really paying dividends by way of Simple Plex instrument and cartridge sales, and academic markets in the U.S. are already starting to embrace Milo, our Single-Cell Western instrument.

As we have said many times before, the markets for Protein Platforms product solutions are collectively approaching $2 billion and we still have less than 5% share. Thus, there is plenty of runway for continued double-digit growth well into the future.

Next, our Diagnostics division had a decent quarter, considering the lumpy nature of this OEM business, as we have discussed in the past. Two out of three major product categories, hematology and glucose controls, experienced growth in the mid- to-high-single digits, showing that end-user demand is strong for these products.

Business with our Chinese OEM customers is especially strong. However, the timing of orders for both Diagnostic components continues to swing their short-term organic growth recorded for the division.

You will recall that this division grew 19% in the prior-year quarter when the timing of these orders was more favorable, so a tough comp in Q1 of this year. There is no change to our intermediate and long-term view of this business. The project pipeline for our Diagnostics division remains very strong with new markets to serve.

Plans are on their way to expand our subsidiary model in Europe to include the Diagnostics division and drive new opportunities with customers there, further expanding our sales funnel. Finally, I would like to comment on our adjusted operating margin performance in Q1.

We've been very transparent over the past year about what kind of initial impact the acquisition was going to have on our margins.

We explained at the end of last quarter that ACD had crossed over into profitability for the first time in Q4, and the first quarter of fiscal 2018 would be the last quarter of margin headwind at the total company level associated with this transaction, which closed in August of last year.

While we did experience an approximate 100-basis-point year-on-year headwinds to adjusted operating margin due to the stub-period ownership of ACD last year, I am happy to report that ACD continued to ramp in profitability, achieving 12% operating margin in Q1.

This puts ACD ahead of its plan on profitability and provides more evidence of just how quickly ACD will continue to the bottom line of the company as it continues to scale. Overall, the first quarter was a great start to what we believe will be a great year among many more ahead as we proceed and execute into our strategic plan.

With that, I will turn the call over to Jim, who will provide more details on our financial performance for the quarter.

Jim?.

Thanks, Chuck. I'll provide an overview of our Q1 financial performance for the total company, and then I'll provide some color on each of our three segments. Starting with the overall first quarter financial performance, adjusted EPS increased 7% to $0.90, while GAAP EPS for the quarter was $0.42 compared to $0.50 in the prior year.

The decrease in GAAP EPS was attributable to a fair market value adjustment made to the earn-out liability for ACD. As the likelihood of payment on the earn-out increases, the fair market value of the earn-out liability also increases, and that change is reflected as a charge in P&L for GAAP purposes.

Management views earn-out payments as part of the acquisition price and valuation paid to the target company, and therefore, exclude these charges as well as other acquisition-related costs from our reported adjusted earnings. Q1 reported revenue was $144.6 million, an increase of 11% year-over-year, with organic revenue increasing 8%.

Fourth quarter reported sales include the 2% growth contribution from acquisitions and a 1% contribution from favorable foreign exchange translation. By geography, the U.S. grew mid-single digits, with both Biopharma and academia growing in the mid-single digits.

Europe's organic growth was in the low-teens, with Biopharma's sales growth in the low-teens and academia up 10%. China's organic growth was nearly 20% in the first quarter, with our Western brand growing over 30%. Japan had a very strong quarter with growth over 20%, while the rest of the Asia-Pac region excelled with nearly 30% growth.

Note that all references made to growth rate by region and end market exclude our OEM sales, which mostly occur in our Diagnostics segment and, to a lesser extent, our Biotech segment. Moving on to the details of the P&L.

Total company adjusted gross margin was 72.1% in Q1, favorable approximately 110 basis points from the prior year, driven by volume leverage and favorable product mix. Foreign exchange helped adjusted gross margin by approximately 30 basis points year-over-year. Adjusted SG&A in Q1 was 27.4% of revenue, 255 basis points higher than last year.

The SG&A increase was driven by the acquisition of ACD in August of last year and, to a lesser extent, strategic investments made in our core businesses to support growth. R&D expense in Q1 was 9.4% of revenue, down 40 basis points from prior year.

The resulting adjusted operating margin for Q1 was 35.3%, a decrease of 105 basis points from the prior-year period. Looking at our numbers below operating income, net interest expense in Q1 was $2.1 million, compared to $1.4 million of net interest expense last year.

The higher interest expense is due to a $400 million line of credit, which was opened in August of last year to replace our previous $150 million line of credit as well as to fund the acquisition of ACD. Other non-operating expense for the quarter was $0.9 million, compared to only $18,000 in the prior-year quarter.

The higher expense in the current period was associated with transactional FX expense caused by the rapid rise of the Canadian dollar in Q1 and its impact to our cash and open current accounts from our operations in Ontario.

Our adjusted effective tax rate in Q1 was 29.3%, an improvement of 210 basis points in the first quarter of last year due to geographic mix. In terms of returning capital, we continue to pay our dividend, and paid out $12 million in the quarter. Average diluted shares were up less than 1% over the year-ago period at 37.7 million shares outstanding.

Turning to cash flow and the balance sheet. $44.4 million of cash was generated from operations in the first quarter and our investment in capital expenditures was $5.3 million. We also made approximately $47 million in M&A investment during the quarter, associated with the CyVek earn-out and, to a lesser extent, the acquisition of Trevigen.

As for other notable items in our balance sheet, we ended the quarter with a $122.7 million of cash and short-term available-for-sale investments. Our long-term debt obligations at the end of Q1 stood at $337.5 million, down $6 million from the end of Q4.

Going forward, our capital deployment priorities remain opportunistic M&A, our dividend and debt pay-down. Now I'll discuss the performance of our three business segments, starting with the Biotechnology segment. Q1 reported sales were $95.1 million, with reported revenue increasing 10%.

Acquisitions contributed 3% to revenue growth, foreign exchange contributed 1%, and organic growth was 6%, led by our ACD and antibody product lines. Adjusted operating income for the Biotech segment was $2 million higher in Q1 compared to the prior year, and adjusted operating margin was 46.9%, a decrease of 210 basis points year-over-year.

The decrease from prior year is due to the stub-period acquisition of ACD in August of last year. Turning to the Protein Platforms segment. Net sales in Q1 were $24.6 million, an organic increase of 25% from the prior-year period, with currency translation having a favorable impact of 1%.

Growth for the division was broad-based in all major product lines and regions. Adjusted operating income in Q1 for the Protein Platforms segment was $3.1 million, representing an adjusted operating margin of 12.4%, an increase of over 1,100 basis points from the prior year.

Strong volume leverage and favorable product mix drove the year-over-year improvement, partially offset by strategic growth investments. Moving on to our Diagnostics segment, reported revenue in Q1 was $25 million, with reported inorganic growth increasing 3% from the prior year.

Our short-cycle OEM hematology controls and glucose controls businesses experienced mid- to high-single-digit growth, indicating the end markets are strong. However, our longer cycle and thus lumpier Diagnostic component business faced a difficult comp to last year, and the timing of orders gave the overall division 19% growth.

Adjusted operating margin for the segment in Q1 was 23.3%, a decrease of 270 basis points from the prior year. The decrease was driven by unfavorable product mix. In summary, for the quarter, our breadth of growth was large, both in terms of end markets and product lines.

We continue to prudently invest back in the business, especially to fuel the growth of our game-changing ACD and Protein Platforms product lines. Even with this investment, these businesses rapidly expanded in profitability and double-digit operating margins should be the norm for them going forward.

The total company's adjusted operating margin contracted by 100 basis points from last year, but solely due to the stub-period ownership of ACD last year. Going forward, ACD will be included 100% in our baseline for quarterly year-over-year comparison. Our view for the remainder of the year has not changed from a quarter ago.

We expect the overall company organic growth for fiscal year 2018 to be consistent with what we saw in Q1. With regard to profitability in fiscal year 2018, Q1 played out as we expected in our last earnings call, and our expectations for the remainder of the year have not changed.

While we expect to continue to see rapid year-over-year operating margin expansion in our fastest growing businesses, ACD and Protein Platforms, the overall operating margin contribution from these businesses is still lower than the company average.

Thus, this mix will pressure overall company adjusted operating margins to be relatively flat to the prior year for the remainder of fiscal year 2018. That concludes my prepared comments. And with that, I'll turn the call back over to Gwen to open the line for some questions..

Thank you. And we'll take our first question from Puneet Souda with Leerink Partners..

Hi, guys. Thanks for taking my question. So, Chuck, maybe if you could start on Europe and it's been a strong one for a number of companies here. Just trying to understand the sustainability of growth there and especially among the different segments that you're seeing growth..

Sure, Puneet. Thanks for the question. So we've had a pretty strong year for going on a year now before really there's any other companies kind of reporting on it. So they're a little bit catching up there. So we've continued to see it. We've classified it as due to execution. We did a lot of changes a little over a year ago and they're really paying off.

We have a full subsidiary model in place. We bought out our Southern distributor, allowed us to really work other countries, Spain and others included, and to get the divisions working together, a lot of cross-selling, a lot of cross-learning together. And so now we've grown, I guess, the sales force about double.

And when you consider ACD now coming on top of that, it'll be more improved. I think overlaying all that is we had timing kind of go our way with Biopharma going on a-year-and-a-half, two years ago, mainly Germany, and that remains strong.

So, with good project timing, good assay sales, where we have more erosion with ELISA here in the U.S., we're very strong in Europe still. I think there are strong results in both our reagents business there and core antibodies in particular. Our Novus is over 30% growth there.

And then, the Protein Platforms is a 30% grower, is kind of a new business there in Europe. It all adds up to double-digit, teens growth. And we see that going forward at least for the foreseeable future to be honest, so..

Okay. That's helpful. So, one quick one on ACD. You highlighted that you're getting into some of the diagnostic and clinical operations.

So, could you give us a sense of how should we think about that? And from more of an operating margin perspective, those labs are a little bit more cost-conscious compared to the Biopharma labs that are more interested in R&D and focused more on sensitivity.

So, maybe could you give us a sense of that? And then maybe just lastly, on overall operating margins, we're getting the sense that it is – I mean, you're expecting flat, but shouldn't that continue to improve, given the improvements that you've seen in operating margins already and the fact that ACD is now part of the company itself?.

Yeah. Sure. So, first off, I guess I'll go back to – we'll see roughly flat our margin because of the mix changes, as the small businesses that are rising rapidly and their improvements are still smaller and they're offsetting the core business. So, Jim has stated many times as well, it's roughly flat.

It'll kind of hockey-stick up on two to three years out. So we're still on our strategic plan to get back to roughly a 41% later, so. But this year will remain largely flattish or so, because of the mix change. Now, if we over-exceed like this quarter with strong results, basically we could improve on that.

But we'd have to continue to see further improvements basically of ahead of their plan, so to speak. And we're throttling it, so to speak, too. We're investing heavily in this business. So we can kind of pick just how much margin we want to see fall through.

So we're trying to pick a mid-single-digit to roughly double-digit in that range, because we wanted to invest heavily back in the business. There's a lot of investment, but head count (22:18) will be over double from when we bought it already. So, growing rapidly. Hard to fuel a 40-plus-percent grower, so.

And what was your first question again on that?.

Yeah.

Just on the diagnostic and clinical labs, and how penetrated are you there in the ACD right now?.

So it's largely still RNA scope of the product. Now we have a deal with an HPV improved assay with Leica, and Leica is motivated and out-selling, but it's still very small in terms of the mix. Going forward, as it grows and we make this platform into a companion diagnostic, margins will remain very strong. It's an 80% gross margin business overall.

But I don't think – it's hard to really analyze right now how much lower it'll be than the current business, but not very far off, we don't think..

Okay..

Yeah. I'd just add that, what small hit there might be to the gross margin, the scale of that business will still help expand the overall operating margin over time..

The biggest hit may be just from paying Leica. So we'll see how that goes..

Okay. Got it. Thanks, guys. Very helpful..

And we'll go next to Dan Arias with Citi..

Hi. Good morning. Thank you. Chuck, Protein Platforms is pretty strong relative to our model this quarter.

Can you just touch on where you're seeing the incremental momentum from a customer's perspective? Is it increased pharma penetration or are you finding that you're making some additional headway on the academic side? And then, if I look at comps for the rest of the year in that segment, it looks like you get a little easier next quarter and then you're in line with the 1Q in the back half.

So I guess any reason why a 20% growth number wouldn't be sustainable going forward this year?.

Well, we think it's very sustainable going forward. So, and as you pointed out, this next quarter is our weakest comp all year, so looking for a good one with them. But 25% this quarter, we're elated with it. Where it's coming from? It's broad-based, it's Biopharma as well as academia.

The Biologics area is still a 30% grower, doing really well business. Nice to see the Milo, the Single-Cell platform, starting to take off finally, 100% growth but on a very small base. And Simple Plex also over 100%, and starting to be less than us – starting to grow and not be so small anymore. So we're on track there.

And I think a nice surprise was we had probably the best quarter in a while with our Simple Western and consumable-driven. So we have a low-double-digit growth in the platform but over 20% overall growth in the category because consumables are really doing well. And that simply means that people are using the machines, and we love that, so.

Once you go Simple Western, you don't go back to the hand and methodology. So, very exciting to see that all four platforms are growing extremely well. And to your point, I see no reason why we shouldn't be at 20%-plus grower for the foreseeable future..

Got you. Okay. And then maybe just on the Diagnostics segment. I mean, how are you feeling about visibility there right now? Obviously that's a lumpy business, just given the revenue concentration.

And are you finding that the inventory work down is more in line with expectations and a bit more predictable?.

Yeah..

And then, on the margin line, I guess, just curious how you should be thinking about profitability of that segment, just given some of the things going on there, glucose pricing, et cetera?.

All right. First on – there's four different platforms in that division and they are virtually all on plan for this quarter for us. Now, we have some continued lumpiness of some accounts. We have one big account that's of almost $1 million. It's just delayed. And it's not with the San Marcos business, which was the usual situation.

They are actually on plan. Jim and I were just looking over numbers before the call just to see – we had 19% quarter last year, it was a pretty good quarter. And we weren't particularly strong in a couple of segments. We were wondering just how strong San Marcos was and they're up 77%.

So it's a pretty tough comp for them this quarter to be going against 77% growth. So, that kind of explains that. So, overall, we see San Marcos looking better. It was a tough fiscal year last year, definitely a better one this year. The pipeline – the reasons we bought these assets are starting to deliver and we see more filling.

We are adding people both in Europe and Asia now and actually start taking the division into those subsidiaries. It's been kind of a U.S.-centric OEM model and there's more we can do in Europe, in Asia and now Americas, coming up here in the coming couple of weeks here in Europe.

And we go over there and do a lot of pipe filling for deals, and we'll have better support and more people than ever this year. So we're kind of all about growing this category in Europe this coming year. And the big accounts that we've talked about supporting this business are really kind of get it back on track.

So, mid-single digit growth this year is where we see it and where we expect it to be, and I think it'll be a better year than last year. And then I'm going to have Jim comment on the margin profile going forward..

Yeah. On the margin side, so the San Marcos business that Chuck referred to, our Diagnostic component piece of our business being the lumpiest, but it also has the highest contribution margin of our four major pieces of that business. And so, when there's a high shipment quarter, you get some great pull-through from that.

When there's a lower one, you suffer from it. So, hence the lumpiness in the margins kind of follow the lumpiness of that piece of the business. So how I would think about the margin in general is how they were for all of last year.

That's how they should pretty much play out by the end of this year, as those orders move out throughout the rest of the quarter..

Okay. Super.

Jim, can I just sneak in one last one? How many bps do you think the weather cost you this quarter?.

On the top line, I mean, I think it's a few hundred thousand..

$500,000..

Yeah. $500,000..

Okay..

We did the math expecting a question from you guys..

About $0.5 million and it's largely academia. We don't have the exposure in Puerto Rico like a fair amount of other people do. It's largely academic. But between Harvey and Irma in Puerto Rico, all told, about $0.5 million, so. And it's run rate stuff we lost at the bench, so..

Right. Very good. Thanks, guys..

And we'll go next to Dan Leonard with Deutsche Bank..

Thank you.

So, first question on the performance in Japan, how much of that would you classify as better end-market environment and how much would you classify as execution?.

Great question. And we've been focused in Japan for really a couple years now. We've had dismal results, but we're not the only one. So, having that come back roaring back at 22% we're pretty happy about, and it's really broad-based.

First of all, we had a lot of execution help because we've been struggling in the last couple of years of really rationalizing our distributor network there. And you know the Japanese model, master distributors working down to many hundreds of dealers, sub-dealers, and that's how the model works there.

And you can have them fighting each other a little too much. So we have that rationalization kind of done this last year and that's now starting to pay off. And then second, finally, long last that we do – it does appear that funding is being more released in Japan and it's finding its way to us as well as everyone else.

We have great instrument products. Our instrument business is doing extremely well there in Japan, helping bolster the whole category, whole company at the 20-plus-percent this quarter. So we hope that continues now. But a nice move in our reagents business as well and I think it's a combination of execution and the market there..

Okay. And then for my follow-up, Chuck, can you elaborate on the trends you're seeing in the bio-production market? I know you've talked about the size of your business there is a bit better than folks appreciate and the trends seem to have been rather lumpy for some of your peers in that market. So, any elaboration on that would be helpful..

Yeah. And we've talked about that. Now we think it's somewhere between $60 million and $80 million that we could consider bio-production. Now the good news for us is that the far majority of our bio-production, our instruments that go into the Biologics area, and being it's a hot new product area, we're ramping up.

We're not seeing the softness others are reporting on. Maybe we'll later. But I know our growth rates in Biologics is as strong as ever, actually accelerating and the consumables picking up behind that as we build more of an installed base. So, feel pretty good for us.

We're nichey in medias and in the areas too, and for us, it's just not that big, where it's not that big a deal. So we're kind of steady as she goes..

Okay. Thank you..

And we'll go next to Amanda Murphy with William Blair..

Hi. Good morning. So I just had a question. You have laid out at your Analyst Day a few targets, one without incremental M&A and one with..

Yeah..

And so, the $850 million that you laid out, I think part of that also included sort of synergies that you could build off the business as it stands today. So I just wanted to go back to that and ask you kind of how do you feel about your ability to check to that number.

And can you give some examples of where you're seeing opportunity for synergies, just say from the acquisitions you've done so far?.

Well, I think, getting back to Europe again, the synergies are working. We have low-teens growth in Europe, which is pretty outstanding for anyone these days, and it's coming from synergies. I think it's giving us 3, 4 full points of extra growth to be honest. The teams are working together and cross-selling and it's working.

Our thesis of $850 million and 41% is on track, all I can tell you right now. We hope to blow it away though, because we will sometime in the next – I think we've got four years to go against the remarks we made a year ago here in New York and, in four years, I assume we'll have some acquisition. So, hopefully, we'll be ahead of that.

But if we don't do anything else, $850 million is our number, is our goal, and I think we're on track..

Yeah. And then, I jumped on a little bit late, but I just wanted to know – I know you had made some comments about BioPharma in the U.S.

So I was curious as to how to think about that going forward, particularly in the upcoming quarter, calendar Q4, and what your expectations are around? If there's going to be any budget flush? Any sign that that business is getting better? Because it feels like there's such a dichotomy between Europe and U.S.

for pharma, even if within the same company sometimes. So I was just curious there..

Yeah. I agree with you on that dichotomy for sure. Well, given we're going up against our weakest quarter last year, we probably won't get that confused with any budget flushing. We should do pretty well hopefully. We always hope for a budget flush, especially with our instrument division, PPD. That could happen.

On the Biotech division, we seem to have – it can be up or down, we don't generally have always a strong end-of-calendar-year finish, but last year we didn't and so I'm hoping for a better one this year. And then your comments on pharma, we actually put comments in our transcript about a positive trend in Biopharma.

We were probably weaker a year ago due to project timing and we see a modest improvement. I only can say, it's back to where the strength was two years ago. But others have commented on this as well, but we're doing okay. I think our numbers are proving itself as well, so. Hopefully, it continues.

Now, if there's further consolidation in pharma in the U.S., it'll be an issue obviously, and there's more rumors flying this morning on the press, right? But so far, so good for us..

Okay. Thanks very much..

And we'll go next to Emily Stent with Baird..

Hey, guys. Thanks for taking my question.

First of all, can you give us an update as to where you are in terms of head count for your commercial ACD and Protein Platform teams? And how close are you to those being fully built out?.

Okay. Well, we're nowhere near fully built up, and we're ramping. So we were roughly 80 people or so when we bought that company, and we're now crossing – it depends on every week we're hiring. I think, as of the quarter-end officially a month ago, I think we were around 150 to 160 in that range.

And commercial is roughly 20-ish in Europe and 25-ish in the U.S. But probably consider that we're probably going to add 20%, 30% to that every year. And we're just starting to get on Asia now until we have a smattering of people there, so. It's getting pretty well built and it's a good team, led by experienced people.

We'll finish out their milestone end of the calendar year here and we have plans in place with the entire team and we don't actually see any real issues in moving forward with that exact team. So we're pretty hopeful. They're all pretty jazzed, they're pretty excited.

I would have to say also in terms of we've done 10 different acquisitions in the time I've been here and this one probably is the most advanced in terms of a team embracing and wanting to be part of Bio-Techne and ready to get at it.

Having to have them wait for 18 months while they sought (36:35) a milestone has been challenging actually to be honest. They want to get on with it. They're demanding their T-shirts..

Perfect. Thanks. And then, last one for me.

Can you talk about how the Fisher channel business performed in the quarter?.

Another question I expected. So it actually did pretty well. But we're in the middle of finalizing negotiations for an extension. So they always do better then, right? So it's just one of those. To be honest, the teams have probably not gotten along as well as they have now in a couple of years.

I think I mentioned the last quarter, things were improving with them. We had pretty good numbers and that again happened this quarter. There's always the issue of slop and how does that go up against our core business as they take on more and more of the channel. We're getting better and better at measuring that.

But we're also working more and more closely together. The leadership of the divisions are good personal friends. As you know, Jim and I and others, we have worked there at one time. So there's no reason we can't get along. And we're very hopeful. So I think we'll have our extensions signed here soon.

And it's good and fair terms for both of us as we grow the business. So, again, I'm not interested in building an army here in the U.S. I mean, I think there's nothing wrong with having this channel partner. They're really paid for growth. They don't take an exorbitant amount. They're very good at what they do.

They have great technical people that we train and it's a good value to our business. Should it ever stop being of value, then we'll take it on ourselves. But they do have a commanding force out there, and they really in terms academia which we focused on, they really are in a pretty good spot with the procurement offices of other university states.

So, to go against them is also a challenging front. Not that we couldn't do it, but there's no reason to worry about it for now, so..

Okay. Great..

Yeah. As you remember, when I started we had zero sales people in the U.S. in this company, and we have now over 20 in the U.S. So we're supplementing, helping them quite a lot. And that's not just for our core business, but it's also because we're getting stronger in bio-production, we're getting stronger in cell culture.

We need to have assay specialists out there because our multiplex and our assay strategy in our portfolio is getting larger. And so we're just getting bigger and we have to supplement a lot of areas where they don't have a lot of stuff, so. If we needed to go along without them, we'd probably need 100 people, so..

Great. Thanks so much..

And we'll go next to Matt Hewitt with Craig-Hallum..

Good morning, gentlemen. Congratulations on the strong quarter..

Thanks, Matt..

A couple of questions. First, I guess, following up on the Fisher negotiations that are ongoing. I know one of the challenges that you've talked about in the past was the extensive training that you guys were needing to go through with their sales people. And then you would see turnover within that group.

Is there a way to maybe structure or tie some of the performance metrics to maybe a little less churn within that Fisher group with the new contract?.

Well, that's a great memory, Matt. And that was a learning we found 18 months to two years in when we saw our numbers softening and that they had a very high turnover, their technical service people that we depend on.

They've since corrected that, really going on two years ago, and we now have a process in place that we do more than once a year to update training, and in webinars and different things, and they're virtually still at full strength. So this is something we watch very carefully. And we do tie things together.

So there are commitments where we have to have people working together in the field, et cetera, and co-play days. So we've done all those kinds of things as well. But we rely mostly on the technical people, not on the 600-plus walking army out there that are more order-taking and account-refresh people out there.

So we're a very large technical sale (40:50) that's our issue..

Okay. And then a follow-up from me. Asia Pacific, Japan, China, obviously a very strong quarter.

Any sense whether some of that was maybe a little bit of pent-up demand as funding is starting to improve as the CFDA is starting to get through some of their work? Or is that maybe just the beginning or we should see that continue to accelerate as that market frees up a little bit? Thank you..

I think, in Japan, it's for sure some pent-up demand, has to be. And in China, we're coming off that comps of this immunoassay area of this Baidu scandal, and that's getting behind us, so. It's one reason the number will start getting better just because the comps are behind us. I don't think there's any pent-up demand.

I think it's just continued strong demand in China. I just returned from a very extensive trip there in Hangzhou as well as other big cities, and the demand is amazing, I think just simply amazing, so..

Great. Thank you..

And we'll go next to Tim Evans with Wells Fargo..

Thanks. Chuck, can we come back to this dichotomy in pharma between the U.S.

and Europe? I'm just curious to kind of get your reflections on what the bigger macro factors might be that's causing that and when they might normalize?.

Yeah. I don't know if they're – I mean they're different companies. I think it comes down to the fact that you've got companies like Bayer and stuff for there that are largely European versus the Mercks and Pfizers over here, et cetera. I think you do see consolidation. Novartis did a lot of consolidating and GSK as well, and they've got sites here.

So I don't know how much dichotomy there should be. And we're just not that big to be honest, compared to a lot of the bigger players in our industry. And we're not that large in bio-tech in the U.S., whereas in Europe there's a lot of biotech. There's a lot of mid-size biotech companies in Europe that we play to.

And in the U.S., we're not really like that. So I think that's probably the biggest difference..

Okay. Thanks for that..

More about biotech than big pharma to be honest. That's probably where it is..

And we'll go next to Paul Knight with Janney Montgomery..

Hi, Chuck.

Can you talk to ProteinSimple? Are we going to be more than a 10% to 15% grower there? I mean, what products, is it the reagent, is it West? I mean, what's going on that's making that 24% growth number happen?.

Yeah. Well, it's a much more balanced business than the PPD division that was just ProteinSimple, because we have the CyVek platform Simple Plex in there and that's growing 100-plus-percent. And we have the Single-Cell Milo, which we purchased, which is also growing over 100%.

But the two major platforms of which we bought ProteinSimple, Simple Western and the Biologics are both growing well north of 20% and accelerating. This is the best quarter we've had in a while, where we've had, as Jim said, seven or eight quarters I think that we're over 20%.

I think this quarter coming up was a mid-teens quarter, and that's the lowest quarter we've had in over two years with these guys. Three years ago, we had to fix some things there, as you remember, but I think it's mission accomplished. So, as I mentioned earlier, Paul, I don't expect anything less than 20% moving forward.

But 15% is on record, 15% should be safe. But things look pretty good, should be 20-ish. If it isn't 20%, we'll be looking to ask why and doing what we do to try to manage for better execution. So the team is solid. We haven't had any turnover in probably three years now at least. Got strong leaders, they're in great shape.

The executives there are firmly on the team here for overall Bio-Techne and we have three divisions and the leader is as much a leader of the company as he is that division and the strong team behind it.

And as you know, we have other great operational leaders that come from our network that have worked with us in the past in places like Thermo and 3M and other places, and it's all going pretty well. Commercially, I'm very happy. We didn't talk about that much, but the Biotech division was working very closely with PPD on the commercial front.

So we have a lot of cross-selling going on. And as I mentioned earlier, we have 20 reps in Biotech and they are definitely helping support the PPD reps out there. And they're selling solutions, not just pieces of iron and vials, so..

And then, the pacing of academia, was it picking up as the quarter wrapped up?.

I wouldn't say that. I'd say, as a trend for the year, it's been better. So it's improving, but there isn't any inflection I wouldn't say..

Okay. Thank you..

I mean, and to follow on that, a lot of it's – I think we talked last quarter about we're starting to see NIH funding, and I think that's part of it. It's continued and we're not the only ones talking this quarter, everyone is talking about improved NIH funding and affecting numbers.

And we see it and it's showing up in our numbers as well obviously, so..

And there are no other questions at this time. I'd like to turn things back to our speakers for closing remarks..

All right. Well, a great quarter, and we hope it's the first of the four this year. So, thanks for the call today. We'll talk to you next quarter. Bye..

Thank you, everyone. That does conclude today's conference. We thank you for your participation..